An Uneven Recovery for Dow Companies

Behind the bull market that drove the Dow Jones industrial average to a record high on Tuesday is a startling gulf in the fortunes of some of the nation's largest corporations.

The new peak came almost exactly four years after the Dow sank to a low of 6,547.05 in March 2009, during the depths of the financial crisis. But not every blue-chip stock has bounced back. In fact, 12 of the 30 stocks in the Dow are still down from their peaks, some of them spectacularly so.

That the Dow industrials could nonetheless advance to a record reflects how big gains in certain stocks, like I.B.M. and McDonald's, have more than offset large losses for others, like Bank of America and Alcoa. While other trends have emerged within the broader stock market—consumer-related stocks have fared relatively well, for instance, while financials and telecoms have done more poorly—the divergence within the Dow points to a shift in financial power among the bluest of the blue chips.

"Yes, stocks individually trade kind of the same in the short term, but over longer periods of time, the truth will (win) out," said Nicholas Colas, the chief market strategist at the BNY ConvergEx Group.

No member of the Dow industrials has done better in the stock market since the last peak than Home Depot. Shares of the company are 108 percent higher than they were in October 2007, closing at $70.47 on Tuesday. The company's market value has risen by $50 billion.

Home Depot has benefited from a nascent recovery in the housing market, but much of the increase has come since the company's relatively new chief executive, Frank Blake, trimmed its expansion in China and instituted a new focus on customer relations.

Because of quirks in the way the Dow is calculated, it is I.B.M. that accounted for the biggest slice of the Dow's gain—12 percent of it to be specific, according to Howard Silverblatt, the senior index analyst at Standard & Poor's.

Even as other big technology stocks like Cisco have struggled, I.B.M. has gained 75 percent since the 2007 high to close at $206.53 on Tuesday. The run for I.B.M. reflects the decision of Samuel J. Palmisano, the chief executive until 2012, to slowly shift the company's focus to software from personal computers, which have been unattractive as tablet computers have taken off.

On the other end of the Dow is Alcoa. The aluminum producer has struggled as expectations for growth in the developing world have dimmed, stifling demand for the commodities. Its stock is still down 79 percent from the last market peak.

Bank of America fared only slightly better because of the legacy of the financial crisis and housing collapse. Even after it was bailed out by Washington, the bank has been hampered by subprime loans made before the crisis, as well as bad acquisitions, like the purchase of the subprime mortgage lender Countrywide in 2008. Bank of America is today worth half what it was five years ago. Its share price has fallen 78 percent since the Dow reached its previous high, closing at $11.55 on Tuesday.

JPMorgan Chase, by contrast, made an early exit from the subprime mortgage market and consequently has emerged from the financial crisis stronger than many of its competitors, positioning itself as the nation's largest and most powerful bank. Its shares are up 4 percent since October 2007.

The Dow's winners and losers are a reminder of how the nation's uneven economic recovery is playing out in the business world, and suggest the caution of investors even as the market has rallied.

The search for safe stocks has led investors to companies that do well even in a tough economy, like Johnson & Johnson and Procter & Gamble. When it appeared that the European debt crisis might drag the world into a double-dip recession, there was an assumption that consumers would still buy shampoo and toothpaste.

Even as the economic recovery has taken root, it has not helped lift the incomes of ordinary Americans. This has been a boon for companies that market lower-cost goods, like McDonald's and Wal-Mart. Both stocks are trading more than 60 percent higher than in 2007.

Consumer stocks are also being helped by the heftier stock portfolios of wealthier Americans, who do a disproportionate amount of the buying.

"This is not an income story, this is a wealth story," said Eric Green, an economist at TD Securities.

It is household wealth that the Federal Reserve has hoped to buttress with its ongoing program of bond buying. By purchasing safe bonds, the Fed has tried to push investors into riskier investment and in turn make those investments more valuable.

Now that the recovery is luring in more investors, strategists see signs of a greater willingness to take on risks within stock portfolios. Since the beginning of the year, the gains in the market have been more evenly distributed than they were over the last five years, with financial firms rising almost as much as consumer staples.

"As the recovery proceeds, the performance will be more broad-based," said Michael Gapen, the chief United States economist at Barclays.